| MARINE PRODUCTS CORP Item 1A Risk Factors Economic Conditions and Consumer Confidence Levels Affect Marine Products’ Sales because Marine Products’ Products are Purchased with Discretionary Income During an economic recession or when an economic recession is perceived as a threat, Marine Products will be adversely affected as consumers have less discretionary income or are more apt to save their discretionary income rather than spend it |
| During times of global political uncertainty, such as the current threats in the Middle East, Marine Products will be negatively affected to the extent consumers delay large discretionary purchases pending the resolution of those uncertainties |
| Interest Rates and Fuel Prices Affect Marine Products’ Sales The Company’s products are often financed by our dealers and the retail boat consumers |
| Higher interest rates increase the borrowing costs and, accordingly, the cost of doing business for dealers and the cost of boat purchases for consumers |
| Therefore, higher interest rates and fuel costs can adversely affect consumers’ decisions relating to recreational boating purchases |
| 9 _________________________________________________________________ Marine Products’ Dependence On Its Network Of Independent Boat Dealers May Affect Its Growth Plans And Sales Virtually all of Marine Products’ sales are derived from its network of independent boat dealers |
| Marine Products has no long-term agreements with these dealers |
| Competition for dealers among recreational powerboat manufacturers continues to increase based on the quality of available products, the price and value of the products, and attention to customer service |
| We face intense competition from other recreational powerboat manufacturers in attracting and retaining independent boat dealers |
| The number of independent boat dealers supporting the Chaparral and Robalo trade names and the quality of their marketing and servicing efforts are essential to Marine Products’ ability to generate sales |
| A deterioration in the number or quality of Marine Products’ network of independent boat dealers would have a material adverse effect on its boat sales |
| Marine Products’ inability to attract new dealers and retain those dealers, or its inability to increase sales with existing dealers, could substantially impair its ability to execute its growth plans |
| Although Marine Products’ management believes that the quality of its products and services in the recreational boating market should permit it to maintain its relationship with its dealers and its market position, there can be no assurance that Marine Products will be able to sustain its current sales levels |
| In addition, independent dealers in the recreational boating industry have experienced significant consolidation in recent years, which could result in the loss of one or more of Marine Products’ dealers in the future if the surviving entity in any such consolidation purchases similar products from a Marine Products competitor |
| See “Growth Strategies” above |
| Marine Products’ Sales Are Affected By Weather Conditions Marine Products’ business is subject to weather patterns that may adversely affect its sales |
| For example, drought conditions, or merely reduced rainfall levels, or excessive rain, may close area boating locations or render boating dangerous or inconvenient, thereby curtailing customer demand for our products |
| In addition, unseasonably cool weather and prolonged winter conditions may lead to a shorter selling season in some locations |
| Hurricanes and other storms could cause disruptions of our operations or damage to our boat inventories and docking facilities, as was the case during the 2005 hurricane season when several boating markets were adversely affected |
| Marine Products Has Potential Liability for Personal Injury and Property Damage Claims The products we sell or service may expose Marine Products to potential liabilities for personal injury or property damage claims relating to the use of those products |
| Historically, the resolution of product liability claims has not materially affected Marine Products’ business |
| Marine Products maintains product liability insurance that it believes to be adequate |
| However, there can be no assurance that Marine Products will not experience legal claims in excess of its insurance coverage or that claims will be covered by insurance |
| Furthermore, any significant claims against Marine Products could result in negative publicity, which could cause Marine Products’ sales to decline |
| Because Marine Products Relies On Third Party Suppliers, Marine Products May Be Unable To Obtain Adequate Raw Materials and Components Marine Products is dependent on third party suppliers to provide raw materials and components essential to the construction of its various powerboats |
| Especially critical are the availability and cost of marine engines and commodity raw materials used in the manufacture of Marine Products’ boats |
| While Marine Products’ management believes that supplier relationships currently in place are sufficient to provide the materials necessary to meet present production demands, there can be no assurance that these relationships will continue or that the quantity or quality of materials available from these suppliers will be sufficient to meet Marine Products’ future needs, irrespective of whether Marine Products successfully implements its growth and acquisition strategies |
| Disruptions in current supplier relationships or the inability of Marine Products to continue to purchase construction materials in sufficient quantities and of sufficient quality at acceptable prices to meet ongoing production schedules could cause a decrease in sales or a sharp increase in the cost of goods sold |
| Additionally, because of this dependence, the volatility in commodity raw materials or current or future price increases in construction materials or the inability of Marine Products’ management to purchase construction materials required to complete its growth and acquisition strategies could cause a reduction in Marine Products’ profit margins or reduce the number of powerboats Marine Products may be able to produce for sale |
| Marine Products May Be Unable To Identify, Complete or Successfully Integrate Acquisitions Marine Products intends to pursue acquisitions and form strategic alliances that will enable Marine Products to acquire complementary skills and capabilities, offer new products, expand its customer base, and obtain other competitive advantages |
| There can be no assurance, however, that Marine Products will be able to successfully identify suitable acquisition candidates or strategic partners, obtain financing on satisfactory terms, complete acquisitions or strategic alliances, integrate acquired operations into its existing operations, or expand into new markets |
| Once integrated, acquired operations may not achieve anticipated levels of sales or profitability, or otherwise perform as expected |
| Acquisitions also involve special risks, including risks associated with unanticipated problems, liabilities and contingencies, diversion of 10 _________________________________________________________________ management resources, and possible adverse effects on earnings and earnings per share resulting from increased interest costs, the issuance of additional securities, and difficulties related to the integration of the acquired business |
| The failure to integrate acquisitions successfully may divert management’s attention from Marine Products’ existing operations and may damage Marine Products’ relationships with its key customers and suppliers |
| Marine Products’ Success Will Depend On Its Key Personnel, and The Loss Of Any Key Personnel May Affect Its Powerboat Sales Marine Products’ success will depend to a significant extent on the continued service of key management personnel |
| The loss or interruption of the services of any senior management personnel or the inability to attract and retain other qualified management, sales, marketing and technical employees could disrupt Marine Products’ operations and cause a decrease in its sales and profit margins |
| Marine Products’ Ability to Attract and Retain Qualified Employees Is Crucial To Its Results of Operations and Future Growth Marine Products relies on the existence of an available hourly workforce to manufacture its products |
| As with many businesses, we are challenged to find qualified employees |
| There are no assurances that Marine Products will be able to attract and retain qualified employees to meet current and/or future growth needs |
| If Marine Products Is Unable to Comply With Environmental and Other Regulatory Requirements, Its Business May Be Exposed to Liability and Fines Marine Products’ operations are subject to extensive regulation, supervision, and licensing under various federal, state, and local statutes, ordinances, and regulations |
| While Marine Products believes that it maintains all requisite licenses and permits and is in compliance with all applicable federal, state and local regulations, there can be no assurance that Marine Products will be able to continue to maintain all requisite licenses and permits |
| The failure to satisfy these and other regulatory requirements could cause Marine Products to incur fines or penalties or could increase the cost of operations |
| The adoption of additional laws, rules and regulations could also increase Marine Products’ costs |
| As with boat construction in general, our manufacturing processes involve the use, handling, storage and contracting for recycling or disposal of hazardous or toxic substances or wastes |
| Accordingly, we are subject to regulations regarding these substances, and the misuse or mishandling of such substances could expose Marine Products to liability or fines |
| Additionally, certain states have required or are considering requiring a license in order to operate a recreational boat |
| While such licensing requirements are not expected to be unduly restrictive, regulations may discourage potential first-time buyers, thereby reducing future sales |
| Marine Products’ Stock Price Has Been Volatile Historically, the market price of common stock of companies engaged in the boat manufacturing industry has been highly volatile |
| Likewise, the market price of our common stock has varied significantly in the past |
| In addition, the availability of Marine Products common stock to the investing public is limited to the extent that shares are not sold by the executive officers, directors and their affiliates, which could negatively impact the trading price of Marine Products’ common stock, increase volatility and affect the ability of minority stockholders to sell their shares |
| Future sales by executive officers, directors and their affiliates of all or a substantial portion of their shares could also negatively affect the trading price of Marine Products’ common stock |
| Marine Products’ Management Has a Substantial Ownership Interest; Public Stockholders May Have No Effective Voice In Marine Products’ Management The Company has elected the “Controlled Corporation” exemption under Rule 303A of the New York Stock Exchange (“NYSE”) Company Guide |
| The Company is a “Controlled Corporation” because a group that includes the Company’s Chairman of the Board, R Randall Rollins and his brother, Gary W Rollins, who is also a director of the Company, and certain companies under their control, controls in excess of fifty percent of the Company’s voting power |
| As a “Controlled Corporation”, the Company need not comply with certain NYSE rules including those requiring a majority of independent directors |
| Marine Products’ executive officers, directors and their affiliates hold directly or through indirect beneficial ownership, in the aggregate, approximately 67 percent of Marine Products’ outstanding shares of common stock |
| As a result, these stockholders effectively control the operations of Marine Products, including the election of directors and approval of significant corporate transactions such as acquisitions |
| This concentration of ownership could also have the effect of delaying or preventing a third party from acquiring control of Marine Products at a premium |
| 11 _________________________________________________________________ Provisions in Marine Products’ Certificate of Incorporation and Bylaws May Inhibit a Takeover of Marine Products Marine Products’ certificate of incorporation, bylaws and other documents contain provisions including advance notice requirements for shareholder proposals and staggered terms of office for the Board of Directors |
| These provisions may make a tender offer, change in control or takeover attempt that is opposed by Marine Products’ Board of Directors more difficult or expensive |